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A.M. Best Affirms Ratings of the Members of Farmers Insurance Group

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Published: Aug 21, 2014 4:08 p.m. ET

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OLDWICK, N.J., Aug 21, 2014 (BUSINESS WIRE) --
A.M. Best has affirmed the financial strength rating of A
(Excellent) and the issuer credit ratings (ICR) of “a” of the members of Farmers
Insurance Group (Farmers) and Farmers Reinsurance Company.
Concurrently, A.M. Best has affirmed the ICR of “a” of Farmers’
management company and attorney-in-fact, Farmers Group, Inc.
(FGI) as well as the debt ratings on the outstanding surplus notes of Farmers
Insurance Exchange (Exchange) and Farmers Exchange Capital.
In addition, A.M. Best has assigned a debt rating of “bbb+” to the $335
million 6.151% surplus notes due November 2053 issued by Farmers
Exchange Capital. The outlook for all ratings is stable. All companies
are domiciled in Los Angeles, CA, unless otherwise specified.

Additionally, A.M. Best has withdrawn the ICR of “bbb” of Farmers’
subsidiary, 21st Century Insurance Group (Wilmington, DE),
following the maturity and repayment of the $100 million senior debt in
late 2013. (Please see the link below for a detailed listing of the
companies and ratings.)

Partially offsetting these strengths is Farmers’ variable operating
performance due in part to catastrophe exposure. However, Farmers
continues to take considerable measures to enhance its underwriting
performance through targeted pricing actions and risk-mitigation
strategies, strengthened underwriting controls and increased utilization
of segmentation.

In addition, the ratings reflect the group’s strategic importance to Zurich
Insurance Group, Ltd. (Zurich) (Switzerland). Collectively, the
members of Farmers are one of the largest personal lines insurers in the
United States, with a particularly strong market position in the western
and southwestern regions. Although Zurich has no ownership interest in
the Exchanges, both entities are strategically linked via an
attorney-in-fact relationship between the Exchanges and FGI, Zurich’s
wholly owned subsidiary. This linkage provides FGI with a source of
consistent fee income, which is accessible to Zurich through FGI
dividends. Given the structural relationship between Zurich and the
Exchanges, A.M. Best deviated from its “Rating Members of Insurance
Groups” criteria by providing Farmers with rating enhancement from
Zurich. As prescribed by the criteria, to be eligible for rating
enhancement, an individual company must operate under common ownership,
with the entity providing lift or maintaining board control together
with common management. In this case, while there is a management
relationship between FGI and the Exchanges, the boards of FGI and the
Exchanges are independent.

Future positive rating movement for the insurance operations is
contingent upon the establishment and continuation of a positive trend
in Farmers’ underwriting results. Conversely, if underwriting results
should deteriorate and cause a decline in the organization’s
risk-adjusted capitalization or the level of support that Farmers
receives while being managed by FGI, which is a wholly owned subsidiary
of Zurich, is significantly reduced, downward rating pressure on the
outlook and/or ratings could be exerted.

The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Best’s Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world’s oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.

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